On the right of dividend distribution of limited companies in China.
Published:
2010-07-31
Abstract:The company's dividend distribution behavior can only be effective if it has both the substantive and formal elements of dividend distribution. Court may give dissenting shareholders compulsoryJudicial remedies for the distribution of dividends. Company Law onThe complementary system of shareholders' dividend distribution rights.
Key words:Dividend Distribution Limited
The purpose of a shareholder investing in a company is to earn dividends to make a profit. Dividend distribution mechanism is an important part of the company system, whether the mechanism is perfect is related to the company, the company's shareholders, the company's creditors and other interests, related to the development of the company can have a solid capital base and a broad social base.
With the increasing development of limited liability companies, the number of lawsuits filed by minority shareholders for dividend distribution is increasing. To this end, this paper intends to combine the implementation of the new company from the perspective of shareholders' rights and interests protection, a superficial discussion of the limited liability company dividend distribution claim legal issues.
The legal relationship of 1. dividend distribution.
1. Basic concepts
(1) Dividends
According to Mr. Wu Yizhou, dividends refer to dividends and dividends, both of which are part of the surplus. According to Mr. Liu Junhai, dividends are property benefits paid by a company to shareholders from its distributable profits in accordance with statutory conditions and procedures. The word "dividend" appears in Article 35 of our company law. In view of the fact that the term "dividend" is equivalent to the common law concept of dividend (dividend) and the term "interest" in Japanese law, and that the term can reflect the specific attributes of shareholders' interests, the author adopts the meaning of "dividend.
(2) Dividend distribution rights
The so-called dividend distribution right refers to the right of shareholders to request the company to distribute dividends to themselves under certain conditions based on the qualifications and status of the shareholders of the company. Dividend distribution right comes from equity and is a kind of shareholder's self-interest right.
2, the characteristics of limited liability companies.
(1) The number of shareholders of a limited liability company is generally small, and it is usually established on the basis of mutual trust, and the shareholders often have the dual identity of investors and operators, so it has the characteristics of remarkable human and closed.
(2) The board of directors and shareholders' meetings of limited liability companies usually apply the principle of capital majority decision.
3, the limited liability company's dividend treatment.
The first case is when the shareholders of the company agree to decide not to pay dividends.
There are two reasonable explanations for this: one is to consider that dividends come from the net profit that has already paid corporate income tax, and investors have to pay personal income tax after receiving dividends, that is, the double taxation of dividends limits the enthusiasm of dividends.
In the second case, the company has declared a dividend but has neglected to pay it.
That is, the company has made a decision to distribute dividends, but has not given a shareholder its share, which forms the company's debt to the shareholders about the dividend payment. Shareholders may sue the company directly for dividend distribution.
The third case is the malicious refusal to distribute dividends.
Under the manipulation of some shareholders or executives, the company can be conditional but refuse to pay dividends. Formally this is equal for each shareholder, because no shareholder receives a dividend, and because whether or not a dividend should be distributed is a business judgment of the company, it is difficult for outsiders to judge and decide whether and how much it should be distributed. Although the company does not distribute dividends to all shareholders for a long time, some shareholders obtain the company's profits in other ways. For example, a major shareholder can disguise the company's profits by raising the compensation he or she should receive as an employee in the company, while depressing the employee's salary of the minority shareholder, or even refusing to hire the minority shareholder. This disguised distribution of profits by replacing dividends with employees' wages is common in limited liability companies because it avoids double taxation of the company. For this kind of profit distribution, it will become necessary, urgent but very difficult for minority shareholders to exercise their right to claim dividend distribution. In this case, dividend distribution disputes are difficult to avoid.
4. Causes of dividend distribution disputes
In the practice of corporate operation in China, many limited companies do not practice corporate governance and thus have a false reputation. For example, some companies plan to raise funds in the market on the one hand and distribute dividends in large proportion on the other hand. Some companies do not disclose their financial accounts to shareholders or even fabricate false accounts to conceal and deceive some shareholders. Some companies even have more than one billion profits retained but do not distribute dividends to shareholders according to the articles of association. The excuse is often "to meet the needs of the company's further business development in the future", but in fact, the distributable profits are used to entrust financial management or other investments.
Analysis of the causes of dividend distribution disputes usually lies in:
First, the crisis of trust and the breakdown of human relations between shareholders based on interests; the absence of shareholders and their executives is based on the actual earnings of the company and the provisions of the articles of association and the principle of good faith to make distribution decisions that are in line with the reasonable expectations of the majority of shareholders;
Second, control shareholders abuse the principle of capital majority.
The abuse of voting rights in the voting procedure of the board of directors and the shareholders' meeting to formulate and adopt the profit distribution plan exceeds the limit, resulting in the company's refusal to pay dividends, constituting the abuse of rights and infringement of other shareholders, thus leading to disputes over the right to distribute dividends.
Third, dividend distribution rights disputes are usually caused by the company's excessive withdrawal of arbitrary provident funds. Our country 《Company LawArticle 167 stipulates that after the company withdraws the statutory provident fund from the after-tax profits, it may withdraw any provident fund by resolution of the shareholders' meeting. Generally speaking, the company's withdrawal of any provident fund is originally a "water and fish" policy, which can be consistent with the interests of shareholders. However, under the special corporate governance structure, out of the will of the major shareholders or the will of the company's management personnel, the directors or major shareholders can meet their own interests in the form of less or even no dividends and more arbitrary provident funds.
The existence of dividend distribution disputes reflects the lack of corporate governance mechanism to a certain extent. Some companies deliberately or maliciously exclude shareholders from participating in the distribution of dividends, and ultimately make the profit expectations of investment shareholders become a mirror image, which easily infringes on the legitimate rights and interests of small and medium shareholders.
Comparison of the legal system of dividend distribution in 2.
1The mandatory dividend distribution system in the United States.
In 1881, the United States established the historically famous Rule of Equity 94, allowing minority shareholders to bring derivative actions for the benefit of the company. The rule states:(1) Before commencing derivative action, a shareholder intending to bring a derivative action should make a formal request to all shareholders to resolve the issue in dispute. (2) The plaintiff shareholder bringing such action shall make the same request to the board of directors in order to exhaust internal remedies. (3) The plaintiff may then lock up the relevant facts and state that there was no collusion between the parties to commence federal proceedings.
The American law requires that the payment of dividends be forced on the premise that the company has sufficient legal surplus and should consider that certain surplus retention has legitimacy, which can be proved by audit, expansion plan or industry average supporting a large amount of running capital demand. Secondly, the shareholders who force to pay dividends must first exhaust the company's remedy, that is, ask the board of directors to make dividend payment first, although it will often be useless, but give the board the opportunity to self-correct misconduct and avoid litigation costs. Finally, a shareholder's equity lawsuit needs to prove that the board of directors is "malicious". If the shareholder can prove that the majority shareholder group in power has the intention to force the minority shareholders away, it can be considered as "malicious". Other evidence can strengthen the determination of "malicious": such as there is a conflict of interest, excessive employment benefits and salaries, or the majority shareholder group deliberately evades the income tax of dividends.
2. The protection of the right of claim for dividend distribution of shareholders of limited liability companies, especially small shareholders, in civil law countries.
In civil law countries, the distribution of corporate dividends is decided by the company's shareholders' meeting. Civil law countries tend to declare dividends as a free business judgment of the company's shareholders' meeting or board of directors, and after the declaration, the dividend becomes the company's debt to shareholders. The courts generally do not intervene to enforce the distribution of dividends. However, in order to protect the reasonable expectation right of minority shareholders of limited liability companies, countries grant some relief rights to minority shareholders, such as ordering the company or other shareholders of the company to purchase the shares of dissenting shareholders at a fair price; forced company dissolution, etc.
3. our countrylimited liability companyThe System Design of Dividend Distribution
(I) dividend distribution mechanism under the framework of the new company law.
1. Substantive elements of dividend distribution.
In order to prevent the company from over-distributing dividends and protect the interests of creditors, countries generally provide for the premise of dividend distribution, that is, the substantive elements of dividend distribution, China is no exception.
First, the dividend distribution should be funded from the company's profits, not from the company's capital. Distributions to shareholders are also not limited to current year profits, but include distributable profits from prior years. Thus, the premise of profit distribution in our practice is the existence of cumulative dividends.
According to Article 167 of the new Company Law, the company must deduct the balance of the following items in turn before it can distribute dividends to shareholders:
(1) Corporate income tax payable by the company in accordance with the law. Article 167 of the Company Law shall be understood as profit after income tax.
(1) Corporate income tax payable by the company in accordance with the law. Article 167 of the Company Law shall be understood as profit after income tax.
(2) Confiscated property and money payable by the company as a result of the violation of the law.
(3) Make up for losses. What needs to be made up is not only the loss of the previous year, but the accumulated loss of the previous year; secondly, the accumulated loss is not first made up by the statutory provident fund, but by the profit after tax of the current year; thirdly, the accumulated loss can be made up by the capital provident fund in addition to the statutory provident fund.
(4) Withdrawal of statutory provident fund at a rate of 10%. In addition, the company can withdraw any provident fund.
In addition, in addition to the above restrictions, the contract signed between the company's creditors and the company may effectively restrict the distribution of dividends, such as the loan contract of a limited company may stipulate that the distribution of dividends is prohibited during the performance of the loan. The company can only distribute dividends if it meets the statutory dividend distribution requirements and complies with the relevant contractual restrictions.
2. Formal elements of dividend distribution:
The distribution of dividends by a company depends not only on the distribution of profits, but also on the company's intention. Only when the corporate governance body announces the distribution of dividends, the shareholder's right to claim dividends can be created. Article 283 of the Commercial Law of Japan stipulates that the plan for the distribution of dividends of a company shall be decided by the board of directors of the company and approved by the resolution of the shareholders' meeting of the company.
Only with both the substantive and formal elements of dividend distribution can the company's dividend distribution behavior be effective, and the shareholders' abstract dividend distribution claim can be transformed into a claim for debt dividend distribution.
3. Criteria for the distribution of dividends
(1) Dividends are generally distributed in accordance with the principle of equality of shareholders and in accordance with the principle of proportional shareholding.
According to Article 35 of the new Company Law, shareholders shall share dividends in accordance with the proportion of their paid-up capital contribution, except where all shareholders agree not to share dividends in accordance with the proportion of capital contribution or do not give priority to the capital contribution in accordance with the proportion of capital contribution. That is, the specific withdrawal ratio is generally based on the proportion of shareholders' capital contribution, but exceptions can be made.
Based on the autonomy granted to shareholders by the new company, in the articles of association, shareholders can pre-fabricate the conditions and procedures for dividend distribution through the articles of association in order to prevent future disputes, which at the same time puts forward higher requirements for the drafting and revision of the articles of association.
(2) On the distribution model in the event of inadequate shareholder contributions
In the case that the shareholder's capital contribution is not in place, when the company designates the date for the shareholder to pay the capital contribution, if the shareholder pays the capital contribution on or before the designated date, the designated date shall still prevail. If the shareholder cannot pay the capital contribution on or before the designated date, the capital contribution proportion shall be calculated based on the actual date, and the capital contribution proportion can also be determined based on the formulation date like other shareholders, however, the shareholders of the delayed capital contribution shall pay interest on the delayed payment of the shares.
4, the specific dividend distribution claim of the subject.
The subject of a specific dividend distribution claim shall, in principle, be the shareholders of the company. In the case of share sharing, a person may be appointed to exercise the rights and accept the distribution of dividends on behalf of all the co-owners, but the company shall be notified.
(II) judicial relief: compulsory distribution of dividends by companies
After the implementation of the new company law, there are view organs have not yet.The action of dividend distribution makes specific provisions, so it is necessary to make a little exploration of this.
1, China has the conditions to establish a compulsory distribution of dividends system.
The lawsuit of compulsory distribution of dividends refers to the lawsuit in which the shareholders apply to the court to force the company to distribute dividends and protect the rights of shareholders in accordance with the articles of association or the provisions of the law when the company excessively withdraws any provident fund or otherwise infringes on the shareholders' surplus distribution rights.
Our countryIn judicial practice,Dividend distribution claims are not uncommon. In 2000, the Supreme People's Court 《Provisions on the cause of action in civil cases(Trial) "Secondary specialized school door set up the" company dividend distribution right dispute "this case, this is the compulsory distribution of dividends.The Opinions of the Higher People's Court of Jiangsu Province on Several Issues Concerning the Trial of Cases on the Application of the Company Law (for Trial Implementation) (III) once stipulated:The plaintiff in the case of the company's dividend distribution right dispute requires the company to pay profits with the following conditions: the plaintiff is qualified as a shareholder; the company has profits available for distribution in accordance with the law; and the company's profit distribution plan has been approved by the shareholders' (general) meeting. The hospital's declaration of dividends.Forced distribution of litigation to carry out useful judicial practice to try.
Mr. Li Guoguang and Mr. Wang Cheng believe that when the company's management or controlling shareholders abuse the principle of capital majority decision, deliberately over-withdraw the provident fund, without distributing dividends or rarely distributing dividends and using it as a means of squeezing minority shareholders, the injured shareholders also have the right to the people's court to force the company to distribute dividends.
If the majority shareholder of a limited liability company abuses the capital majority decision, does not pass the distribution plan for a long time when the company has sufficient dividends, and the majority shareholder neglects or maliciously restricts the minority shareholders from seeking private relief, it is one of the best remedies for the minority shareholders of a limited liability company to demand the distribution of dividends under the current law.
The author thinks that, in view of the integration trend of civil law and common law, China is fully qualified to learn from the dividend distribution system of the United States, and continue to implement the judicial relief of compulsory dividend distribution.
Judicial Operation of (II) Compulsory Distribution of Dividends
1. The characterization of the claim that the company is forced to distribute dividends.
There are two main types of litigation brought by shareholders under the Companies Act: representative litigation and direct litigation. The direct action stems from the breach of the shareholder's membership contract, while the basis of the representative action is the loss caused to the entire legal person, mainly the breach of the company's responsibility. In the company law, the shareholder's claim for the right of dividend distribution, because an inherent clause of the shareholder's membership contract is that the operator should fulfill its obligations to the company. In other words, one of the obligations of the operator to the company is to perform the contract of shareholder membership between the company and the shareholders. The basis of direct shareholder litigation lies in the violation of the shareholder's membership contract, which will inevitably lead to the intersection of representative litigation and direct litigation in the extension. One view is that a shareholder's action for the mandatory declaration of discretionary dividends raises questions about the directors' duty of good faith to the company in maintaining a sound corporate financial policy, and that the purpose of the case is to cause the court to perform the duties of the director's management of the company in the absence of bad faith, and should be considered a representative action. One view is that the right of shareholders to receive dividends is part of the contract of shareholders' rights. The payment of dividends to shareholders is an obligation of the company rather than a right of the company. Such proceedings shall therefore be direct proceedings. Shareholders are the aggrieved parties in such cases, and the beneficiaries of dividend returns are the shareholders, not the company.
In summary, from the type of action, the action of forcing the company to distribute dividends belongs to the category of giving, and its nature should belong to the direct action of shareholders.
2. Determination of litigants
2. Determination of litigants
(1) The plaintiff. shall be qualified as a shareholder of the Company andShareholders whose rights have been infringed.
(2) The defendant shall be the company in which the shareholder's rights are held.
(3) Whether the director can be listed as the defendant in the lawsuit. The vast majority of U.S. courts have taken a negative view. Some cases hold that directors are not necessary parties, but conditional necessary parties. Mr. Liu Junhai believes that since the validity of the judgment extends to the company, and the directors are present as the executors of the company's business, and the board of directors of our country is not the decision-making organ for the distribution of surplus, the directors should not be the parties to the lawsuit.
(4) whether other shareholders can be listed as the third party in the lawsuit. In view of the fact that other shareholders have a legal interest in the distribution of dividends, but are not obliged to pay dissenting shareholders, the author believes that they can be classified as third parties without independent claims.
4, the mandatory distribution of dividends of the discretion of the lawsuit.
(1) Shareholders may sue directly for the distribution of dividends in the event of a dividend declaration.
Company. The court may decide on the basis of the existence of a dividend debt relationship.
(2) Treatment of cases of malicious refusal to distribute dividends
First of all, because the distribution of dividends belongs to the scope of free business judgment within the company, the company will consider retaining a certain amount of dividends when formulating the dividend distribution plan, which is conducive to the long-term development of the company. Therefore, the court only intervened on the premise that the board of directors of the company did not distribute dividends in bad faith and its behavior exceeded the reasonable scope.
Secondly, under realistic conditions, the court can declare a pre-judgment on compulsory dividend distribution on the grounds that the board of directors fails to perform its duty of good faith to the company and shareholders in maintaining a sound financial policy of the company. order the board of directors of the company to put forward a general policy for capital improvement within a reasonable period of time, formulate a dividend distribution case in line with the development of the company, and declare a reasonable dividend.
Third, if the board of directors of the company fails to perform the above obligations within the prescribed time limit, the court may make a judgment on the distribution of discretionary dividends in accordance with the relevant provisions of the company law and the articles of association.
In this case, the general burden of proof for the dissenting shareholder is:
(1) The company has sufficient legitimate profits and the retention of dividends exceeds the general standard, which can be proved by the relevant audit report.
(2) The shareholders have requested in writing to convene a board of directors and a shareholders' meeting and to make plans and resolutions on the distribution of dividends, but have been refused.
(3) It is proved that the board of directors and shareholders' meeting did not make a resolution on dividend distribution, and there is subjective evidence of "malice". For example, the major shareholders do not distribute profits when the company has a good prospect and has a large amount of dividends, intending to take the minor shareholders; Major shareholders withdraw excessive benefits and salaries; Major shareholders deliberately avoid income tax on dividends and other evidence.
Other Preventive and Remedy Measures for 5. Dividend Distribution Disputes
The new company law separately designed the shareholders' meeting, the board of directors revocation and invalid confirmation system and the shareholder withdrawal system, for shareholders to choose to exercise. Because the aforementioned system and the upper dividend distribution system form a complementary relationship in the body system. For this reason, it is also necessary to mention it slightly in this paper.
1. Exercise the right of revocation and invalid confirmation of the general meeting of shareholders and the board of directors.
According to the provisions of Article 22 of the new company law, shareholders' concerns about dividend distribution can first be placed on the procedural defects of the shareholders' meeting or the general meeting of shareholders and the board of directors, that is, if the convening procedure and voting method of the shareholders' meeting or the general meeting of shareholders and the board of directors violate laws, administrative regulations or the articles of association, the shareholders may request the people's court to revoke the resolution within 60 days from the date of the resolution. If the resolution of the shareholders' meeting, the general meeting of shareholders or the board of directors violates laws, administrative regulations or the articles of association of the company, the shareholders may also file a lawsuit with the people's court for confirmation of the invalidity of the resolution.
Accordingly, when the company excessively withdraws arbitrary provident fund or infringes the dividend distribution right of shareholders in other forms, any shareholder may bring a lawsuit to the court to revoke the resolution of the shareholders' meeting or confirm the invalidity of the resolution of the shareholders' meeting on the grounds that the principle of capital majority decision is abused and the resolution of the shareholders' meeting is infringing, thus clearing obstacles to the declaration of dividend distribution.
2, choose to exercise shareholder stake.
Withdrawal refers to the right of small and medium-sized shareholders in a weak position to have and exercise the right to forcibly transfer shares to the company after the relationship with the controlling shareholder has broken down and has been seriously excluded by the controlling shareholder and cannot transfer shares normally by other means. According to the provisions of Article 75 of the new company law, the company does not distribute profits to shareholders for five consecutive years, and the company has made profits for five consecutive years and meets the conditions for the distribution of profits prescribed by law, and the company does not distribute profits,Shareholders who vote against the resolution of the shareholders' meeting (usually referred to as "dissenting shareholders") may request the company to purchase their shares at a reasonable price; within 60 days from the date of passing the resolution of the shareholders' meeting, if the shareholders and the company cannot reach an equity acquisition agreement, the shareholders may bring a lawsuit to the people's court within 90 days from the date of passing the resolution of the shareholders' meeting.Before the implementation of the new company law, similar provisions were made in the opinions of the Shanghai Higher People's Court on the handling of certain issues involving company litigation, and the shareholder's withdrawal of shares made a positive judicial attempt.However, in cases where the company has already declared a dividend, it may not be necessary to exit the company, but the shareholders have the option.
In view of the complexity of the litigation procedure and the difficulty of proof of the compulsory distribution of dividends, the new company has designed a simpler way out for the dissenting shareholders, that is, to give the dissenting shareholders to withdraw their shares, openExit the door of the company. But having said that, the company that I personally created is profitable and forced to withdraw its shares. For dissenting shareholders, most of the time it is avoided. In this sense, it is necessary to retain the system of compulsory distribution of dividends.
Anyway. Dividend distribution right is the most basic and core right of shareholders, which is not only directly related to the vital interests of individual shareholders, but also related to the development of the company system itself and the interests of the whole society. To this end, we expect the Supreme People's Court to issue a new judicial interpretation as soon as possible to better interpret and standardize the dividend distribution mechanism already established in the new company law.
Main references:
1, "The Protection of Shareholders' Rights of Limited Companies" by Liu Junhai Law Publishing House.
2、《Some Issues in the Trial of Corporate Litigation Cases-Judicial Reflections on the Implementation of the Revised Company LawSupreme People's Court Li Guoguang, Wang Chuang
3, "Corporate Litigation-A New Theory of Corporate Judicial Relief" Qian Weiqing.
4、《Legal Reflections on the Mandatory Declaration of Discretionary Dividends by Minority Shareholders of Limited Liability Companies
(This article won the second prize of 2010 Jinan excellent lawyer paper)
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